Delphi hikes diesel injection output in Europe

FRANKFURT - Delphi Automotive Systems Corp.'s plans to quadruple common-rail diesel production capacity will help ease Europe's strained demand and could position the company to supply North America should interest in diesels increase.

Delphi plans to add production lines at two facilities already producing diesel components, boosting annual capacity from 500,000 units to 2 million units by 2004. The sites are La Rochelle, France, which began common-rail production earlier this year, and Blois, France, which makes other diesel injectors.

Delphi wouldn't disclose the investment or the timing involved in the initiative. The expansion will support contracts Delphi has landed in recent months. In addition to work for Renault and Ford, Delphi has secured contracts with PSA/Peugeot-Citroen and Kia.

"We can't build enough diesels here," Delphi CEO J.T. Battenberg III said. "We're working around the clock."

It's a problem facing all of Western Europe's diesel providers as the market continues to boom.

About 34 percent of new cars sold in Western Europe this year are expected to be diesel, up from 22 percent in 1997.

Diesel's share is expected to rise soon to 40 percent. In some larger-vehicle segments, the share is even higher at 60 percent to 70 percent of the market.

Challenging Bosch

Bosch has the majority market share, though Delphi says it is No. 2, with 15 percent of Europe's $4.9 billion market. Delphi bought the Lucas diesel business from TRW for $870 million last year.

Siemens and Denso also are working to break into the diesel market in Europe. Demand is outpacing production capacity for the providers. But with moves such as Delphi's expansion, and increased capacity and automation from others, the supply situation, though still tight, has improved from a year ago, one industry analyst said.

"My gut feeling is we are moving toward an equilibrium situation, in which the balance between demand and supply has moved from an unhealthy situation," said Peter Schmidt, analyst with Automotive Industry Data in Warwick, England. "Come the middle of 2002, my understanding is we are likely to be in an equilibrium situation, where demand meets supply."

But Delphi's expansion may be too much, even as demand continues to grow, Schmidt said. He estimated more than half of Delphi's 2-million-unit capacity will be dedicated to European production while the rest could be slated for North America.

Demand for common-rail diesel for light trucks is growing in the United States, and some speculate the car market could follow, given rising fuel prices.

Stringent U.S. emissions proposals and consumer reluctance threaten diesel's transfer to the U.S. car market. Still, diesel suppliers say they have received a lot of interest from U.S. carmakers.

Asian business

Even without robust North American demand, Delphi always could price its technology lower than Bosch to grab European market share and fill capacity, Schmidt said. The Asian market also could provide new business, a Delphi official said.

Delphi's common-rail systems currently are made for the Renault Clio and Ford Focus TDCi.

Production began in August for the Kia KJ 2.9, available in the Carnival and Terran.

Production of the diesel injection systems is slated to launch later this year. But those programs alone won't require the entire capacity expansion. Instead, Delphi will capitalize on continued growth in Europe, officials said.

Said Battenberg: "We're going to be a dominant player in that arena."

You can reach Amy Wilson at awilson@crain.com

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